The Ghosts of Modern Monetary Theory

«Le papier-monnaie revient finalement à sa valeur intrinsèque - Zéro.»

Voltaire

Turk and Keiser Discuss the French Experience with L'illusion de la Monnaie Fiduciaire

American Psycho Redux

"Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, and one by one."

Charles Mackay

The US is remarkable, not for any unusual distribution of psychopaths amongst its people, but rather for the high regard and admiration in which the more articulate and successful psychopaths and sociopaths among their ranks are held by the public, their natural prey.

The problem is not that there are disturbed and destructive people in a society. The problem is when they are able to subvert a culture to satisfy their goals, when their animalistic cunning and heartlessness becomes fashionable, imitated, and even respected.

It is surely the greatest triumph of madness over common sense since the self-destruction of nations in the 20th century. Whole peoples surrendered themselves to ruthless leaders, thrilled to be ravaged by power without weakness. They drank deeply from the cup of madness and danced with the culture of death. And that is what it is to be without boundaries or constraints, free as gods on earth.

"He may have destroyed men, women, and children, and condemned thousands of families to homelessness and despair, but he never wavered in his resolve and conviction while doing it. He amassed great power and fortune, and he never got caught. He believed in himself, and he's a winner."

"The manipulative con-man. The guy who lies to your face, even when he doesn’t have to. The child who tortures animals. The cold-blooded killer. Psychopaths are characterised by an absence of empathy and poor impulse control, with a total lack of conscience.

About 1% of the total population can be defined as psychopaths, according to a detailed psychological profile checklist. They tend to be egocentric, callous, manipulative, deceptive, superficial, irresponsible and parasitic, even predatory.

The majority of psychopaths are not violent and many do very well in jobs where their personality traits are advantageous and their social tendencies tolerated. However, some have a predisposition to calculated, “instrumental” violence; violence that is cold-blooded, planned and goal-directed.

Psychopaths are vastly over-represented among criminals; it is estimated they make up about 20% of the inmates of most prisons. They commit over half of all violent crimes and are 3-4 times more likely to re-offend. They are almost entirely refractory to rehabilitation. These are not nice people.

So how did they get that way? Is it an innate biological condition, a result of social experience, or an interaction between these factors?

Longitudinal studies have shown that the personality traits associated with psychopathy are highly stable over time. Early warning signs including “callous-unemotional traits” and antisocial behaviour can be identified in childhood and are highly predictive of future psychopathy.

Large-scale twin studies have shown that these traits are highly heritable – identical twins, who share 100% of their genes, are much more similar to each other in this trait than fraternal twins, who share only 50% of their genes. In one study, over 80% of the variation in the callous-unemotional trait across the population was due to genetic differences. In contrast, the effect of a shared family environment was almost nil.

Psychopathy seems to be a lifelong trait, or combination of traits, which are heavily influenced by genes and hardly at all by social upbringing.

The two defining characteristics of psychopaths, blunted emotional response to negative stimuli, coupled with poor impulse control, can both be measured in psychological and neuroimaging experiments...They do not seem to process heavily loaded emotional words, like “rape”, for example, any differently from how they process neutral words, like “table”.

This lack of response to negative stimuli can be measured in other ways, such as the failure to induce a galvanic skin response (heightened skin conduction due to sweating) when faced with an impending electrical shock...

The psychopath really just doesn’t care. In this, psychopaths differ from many people who are prone to sudden, impulsive violence, in that those people tend to have a hypersensitive negative emotional response to what would otherwise be relatively innocuous stimuli."

Craig, M., Catani, M., Deeley, Q., Latham, R., Daly, E., Kanaan, R., Picchioni, M., McGuire, P., Fahy, T., & Murphy, D. (2009). Altered connections on the road to psychopathy Molecular Psychiatry, 14 (10), 946-953 DOI: 10.1038/mp.2009.40

A Nation Run Not By Shopkeepers, But By Con Men, Protection Rackets, and Swindlers

"And remember, where you have the concentration of power in a few hands, all too frequently men with the mentality of gangsters get control. History has proven that."

Lord Acton

Income inequality such that it suppresses the middle class is a practical policy problem for what I hope are obvious reasons of inadequate demand and economic stagnation.  As the US currently has one of the most extreme income distributions since the Great Depression it is currently a topic of renewed interest.

Mark Thoma has an interesting discussion of this here: Income Inequality Is Hobbling the Middle Class

But  in addition to this more practical discussion, Matt Taibbi brings out a key point in his most recent essay on the financial crisis. It is not so much the inequality per se that is troubling people, but rather the concomitant gaming of the system, the blatant cheating, that is making people angry.

"When you take into consideration all the theft and fraud and market manipulation and other evil shit Wall Street bankers have been guilty of in the last ten-fifteen years, you have to have balls like church bells to trot out a propaganda line that says the protesters are just jealous of their hard-earned money...At last count, there were 245 millionaires in congress, including 66 in the Senate. And we hate the rich? Come on. Success is the national religion, and almost everyone is a believer. Americans love winners. But that's just the problem. These guys on Wall Street are not winning – they're cheating. And as much as we love the self-made success story, we hate the cheater that much more."

OWS's Beef: Wall Street Isn't Winning – It's Cheating - Matt Taibbi

The perception is that the US has slipped from meritocracy to oligarchy, with the implications for long term growth and competitiveness of course. Oligarchies are quite often a study in stagnation and decline, plagued by idiot sons and frivolous dissipation of wealth and vitality. It is the deep capture and ravaging of the American dream by dishonest and dishonorable men.

But in what is nominally still a democratic republic, the rise of an oligarchy is a tearing of the social fabric with some serious long term consequences. And there will be a serious price to pay if dissent and efforts at reform are further suppressed.

If legitimate criticism and reform is stifled, rising domestic turmoil often results in a change of regime, or at least a shifting of power. We are seeing this in various countries across the world as the great empire totters. But sometimes the local bully boys are able to suppress domestic dissent, and so other interested but exogenous parties become involved. We most recently have seen this in Libya for example.

If the rest of the world acts first, and expresses its revulsion at the long endured abuses of the Anglo-American banking cartel, we may see a flight from a capital system gone rotten, with all the chaos and wealth destruction and death of innocence that this implies.

This is the most probable scenario for a hyperinflation that I can imagine.

"Turn where we may, within, around, the voice of great events is proclaiming to us, Reform, that you may preserve."

Thomas B. Macaulay

Gold Daily and Silver Weekly Charts - Comex Option Expiration Tomorrow

It was 'risk off' today as domestic economic news was weak and Euro-optimism was subdued.

There was intraday commentary on today's somewhat unusual rally in gold and silver here.

The economy in the US continues to weaken, and the political leadership seems preoccupied with doing more trickle down favors for their wealthy contributors.

There was an interesting divergence as gold and silver were up sharply as stocks were lower. That's a change of pace.

Tomorrow is the November option expiration on the Comex. I discussed this intra-day here.

SP 500 and NDX Futures Daily Charts

Markets took a pause today on less optimism on Europe and domestic US recovery.

Keep an eye on the sovereign debt situation in Europe because that is a primary short term driver of this market.

Amazon missed and lowered after the bell, and so is getting hammered a bit in the late trade.

The US economy is not recovering and the plans being put forward for change are not likely to help anyone but those who are already fortunate, which does little for the economy but is a great source of personal income for the pigmen and their support system.

Net Asset Value of Certain Precious Metal Trusts and Funds

The Next Two Dates to Watch for Comex Option Expiration in the Metals

Keep an eye out for the next two Comex option expirations in the metals, both tomorrow 26 October but in particular the December expiry on 22 November. Perhaps not so much tomorrow but the days after. And of course December is a key month. I see resistance at 1720 that may prove to be important.

And never forget how the metals markets were ruthlessly slammed down into the October expiration on Sept 27, when the shills and apologists for the banks and hedge funds tell you how sound and fair the markets are, and denounce any evidence to the contrary.

Sometimes it seems that, as Chris Powell so astutely observed, "there are no markets anymore, just interventions."

This is what Markopolos faced when attempting to expose the great Madoff fraud, and it repeats almost endlessly in times of sanctioned corruption. Evidence is gathered by outsiders, presentations are made and ignored, the testimony of whistleblowers is ridiculed and even assaulted, the fraudulent scheme falls in a collapse, the public is tasked to absorb the losses and insiders keep their gains, and the many enablers move on as the public is distracted and forgets.

Nothing will change while crime pays. And even as things change, reform is taken away from the hands of the people, and carefully managed in back rooms and private deals.

"The most dangerous moment for a bad government is when it begins to reform."

Alexis de Tocqueville

Those in positions of authority and beneficiaries of the status quo understand this well. That is the credibility trap that is the impediment to recovery. Reform is an impulse to be carefully managed and directed by the insiders, and those who are implicated in corruption and sometimes even great crimes. The benefits of genuine reform are secondary to the appearance that 'something is being done.'

And if the charade goes on long enough, the people begin to take to the public squares and the streets, because they are otherwise being ignored, betrayed and abused.

The moment is most dangerous when the decision is made whether to answer the people with change, or stifle their just complaints with repression. Then the die is cast, and the great moment of history truly begins.

It is good to see gold open interest on the Comex at relatively low levels here, as the commercials continue to cover ahead of the enactment of position limits, projected to occur in the first month of 2012.

Gold Has a Go to the Upside as Stocks Slump on Euro Fears - Flight From Fraud

"The desire of gold is not for gold. It is for the means of freedom and knowledge."

Ben Davies

Gold and silver diverged from US equities today as fresh jitters over the Euro bailout put a damper on stocks.

Keep the $45+ rally in context of the current trading range however as is shown below. It has not yet broken out.

If you are trading with Level II market view in something like the miners or a less liquid ETF, you may place a bid or ask of a thousand shares or more, and it quickly finds a lot of 'friends' of a lesser amount jumping in front of it. And when you place a sell into a group of bids, a tiny amount may be filled, but then the bids disappear and drop lower.

These are thin, volatile markets, permeated by fraud, deception, and front-running of everything from global headlines down to individual bids. The talking heads and Wall Street demimonde are spinning stories and alternatively feeding hysteria and euphoria, greed and fear, under cover of the lax regulation and co-opted public policy.

The US financial system has gone predatory. The political system has given itself over to the corporate interests. Nothing could be more clear in the regressive tax proposals coming out of the Republican debates, and the Democrats are feeding greedily at the same trough of foul campaign funds and special privileges.

If you are a daytrader and can make money playing the momentum in this then good for you. But I think that most people who attempt to trade these markets will make very little on net, and are more likely to lose money. Better to stay with the longer term trends based on fundamentals. This will get worse before it gets better.